Macro Environment Analysis
(Assignment – 1)
The impact of economic factors on
The Garment Industry in Bangladesh
Name
ID
Work
Md. Ridwan Siddiquee
Wadud
1603410108930
Overall Assignment
Musarrat Hossain Munia
1603410109061
Overall Assignment
Subject Code: BUS 305
Section: Accounting
Group name: Contrivers
Semester: 7TH | Batch: 34
Lecturer Name: MS. Ishrath Sharmin
Submission Date: 10 August 2020
Table of Content:
Introduction …………………………………………………………………………………3
The impact of economic factors on the Garment Industry in Bangladesh…………………..3
Conclusion ………………………………………………………………………………..…6
References…………………………………………………………………………………...7
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Introduction:
Agriculture has been the part and parcel of the economy and chief source of income for the
people of Bangladesh, the country made of villages. Government works hard to decrease
poverty by getting the highest productivity from it and achieving self-reliance in food
production. Apart from agriculture, Bangladesh is also concerned about the growth of the
export division. Bangladesh has successfully accelerated her exports and trade from time to
time (Fibre2Fashion, 2005).
The Bangladeshi garment industry has been the key export division and it is serving as the
main source of foreign exchange. For the last 25 years, Bangladeshi Garment Industry
generated enough foreign revenue to create jobs for millions. This industry boosted women
empowerment as 90% of these workers are women (Fibre2Fashion, 2005).
These amazingly hard working professionals are producing $5 billion worth of products each
year. Being a third world country, as the labour charge is low, it is considered as one of
the main reasons for the global demand of garment manufacturing in Bangladesh
(Fibre2Fashion, 2005).
But the world's second-largest garment exporter, Bangladesh is facing a huge difficult
situation due to the corona virus pandemic. They are rapidly losing orders, and millions of
jobs are at risk. “Bangladesh has lost around $1.5 billion (€1.4 billion), which has impacted
some 1.2 million workers”, according to Rubana Huq, president of Bangladesh's Garment
Exporters and Manufacturers Association (BGMEA). She further added foreign brands are
increasingly delaying and canceling orders (Ahmed, Deutsche Welle, 2020).
The impact of economic factors on the Garment Industry in Bangladesh:
These are the macro Economic Factors of business. All of these factors are having an impact
negatively after the pandemic.
1. Inflation and general price level: Inflation generally means the availability of cash
in the market with the increase of price level whereas recession is the opposite
situation of recession. After COVID-19 has hit Bangladesh, Companies were forced
to retrench the workers or even make their wages half because of the reduced global
demand. On the other hand, the price of daily commodities jumped up drastically as
everyone had started to purchase a volume of products more than their actual need.
Though general price level of Ready Made Garments didn’t change, it is unavoidable
that the workers are suffering to lead their life because of the order cancellations
(Sumon, 2020).
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2. Lending Rates: As all the industries are highly affected due to the corona
virus pandemic. BGMEA asked the government for help to save the garment industry
as the disposable income of the companies decreased rapidly.
The managing directors and CEOs of all banks informed us over the phone that they
would implement the 9% lending rate from Wednesday,” BB Executive Director Abu
Farah Md Naser told Dhaka Tribune. “Implementation of the single digit lending rate
would not be that difficult as the BB took several initiatives to increase liquidity in the
money market,” said Salehuddin Ahmed, former governor of the central bank (Hasan,
2020).
3. Labour Costs: It is considered as one of the most controversial factors in the world.
Bangladesh has been facilitating the global garment industry with cheap labor.
Although the labour cost is cheap compared to the international market but as a
developing country recently hit by such a pandemic it became difficult to manage
their employees/workers salary with the reducing demand in the global market,
companies could not afford the cheap labour either. So it resulted in the ultimate layoffs or Pay-Cuts. The Bangladesh Garment Manufacturers and Exporters Association
(BGMEA) has mentioned that around 60 factories did not pay their workers before
the Eid-ul-Fitr holidays while 478 have closed over two months prior Eid, Western
retailers have canceled and stopped the payment of orders worth more than $3.15
billion (Sumon, 2020). As a result workers of several factories started protesting
during the lockdown as in Workers of Medlar Apparels Ltd and Adiyat Apparels Ltd
demonstrated on May 14 morning for payment of full wages, other arrears and
reopening the factories (Hussain, 2020).
Source: Clean Clothes Campaign
4. Economic system: The economy in Bangladesh is Mixed. As it is mostly operated in
an open market policy, it became real hard for the companies to keep up with the
global competition. Our Garment Industry is competing with other international
companies and earning revenue for the country. After the pandemic it became close to
impossible for the firms to face the reduced international demand and retain the
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workers with lower disposable income. Hundreds of workers lost their jobs to save the
companies and the overall industry. It was one of the biggest hits after the Rana Plaza
Incident (Hasan, 2020).
5. National Income and distribution: Volume of National Income and its distribution
affects the economic environment. Eventually a higher National Income helps a
country's development. National income increases consumption thus it distributes the
income to the mass people. Since the outbreak is costing the industry to retrench the
workers, the national income and distribution is negatively impacted (Ahmed,
Deutsche Welle, 2020).
6. Exchange rates: The rate at which one country's currency is exchanged with another
country's currency is called the exchange rate. It is the price of a foreign currency that
one dollar can buy. Due to this pandemic dollar (which is considered to be the
standard for exchange rate) rates fluctuate a lot. When the country's currency rate
against the dollar decreases it makes imports more expensive and exports less
expensive in foreign markets (Corsetti & Marin, 2020).
Source: voxeu.org
7. Taxes: A business gets highly affected with the taxation policy of a country. Almost
every country in the world extended the timeline for filing of Returns, giving relief to
the taxpayers including India, Sri Lanka, Singapore, Malaysia and Vietnam have
considered the taxpayers' difficulties and extended various return filing deadlines.
India, for example, has deferred submission of Goods and Service Tax Returns for the
month of March, April and May till June 30. No interest, late fees or penalties are
charged for the small companies (less than Rs 50 million turnover) while a reduced
interest is payable by the others for the late submission. Even a small country like
Bhutan has deferred income tax payment by a quarter. In Bangladesh companies are
required to make advance payment of their estimated income tax on a quarterly while
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VAT on a monthly basis. The Bangladesh Federation of Industries and Chambers
made a request to extend the tax filing timeline but did not get any response from the
NBR. They may consider deferring these taxes at least for a quarter for those severely
hit by the crisis. Alternatively, they can at least give an option to the companies in
distress to apply for such deferral and grant approval on a selective basis after due
consideration (Choudhury, 2020).
8. Money Market & Capital Market: Although according to the order of Bangladesh
Bank, commercial banks are asked to give loans at 9% interest. Most banks are
unwilling to lend money as many of their clients are withdrawing money to meet their
expenses so their liquidity decreased to a good extent. As a result it is getting difficult
for the money market to lend money for industries (Hasan, 2020).
With the rapid reduction of foreign orders garments industries are losing their profits.
As a result the companies (i.e Dragon Sweater and Spinning Limited, Hamid Fabrics
Limited etc.) that are enlisted in the capital market are being unable to give any
dividend which is affecting the stock holders.
Conclusion:
Bangladesh, the second largest garment exporter right after China, had to face a heavy troll
due to the Novel Corona Virus pandemic. With the increasing number of delaying and
canceling orders, the country's huge rate of employment was at stake. For the past few
months there was a huge risk of losing revenue from one of its biggest industries, the
readymade garments industry. But in the past few days there is a good sign that the foreign
orders are gradually increasing. Workers are going back to work and the Government is
lifting the lockdown too. The Garment industry has survived the Rana Plaza Incident before
and hopefully the industry can overcome the current situation too.
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References
Ahmed, Z. (2020, March 25). Deutsche Welle. Retrieved August 7, 2020, from Deutsche Welle:
https://www.dw.com/en/coronavirus-bangladeshs-garment-industry-risks-collapse/a-52917410
Ahmed, Z. (2020, June 10). Deutsche Welle. Retrieved August 7, 2020, from Deutsche Welle:
https://www.dw.com/en/coronavirus-economy-down-poverty-up-in-bangladesh/a-53759686
Choudhury, J. A. (2020, May 5). The Financial Express. Retrieved August 7, 2020, from The
Financial Express: https://thefinancialexpress.com.bd/views/tax-policy-response-to-covid-191588694880
Corsetti, G., & Marin, E. (2020, April 3). VOXEU. Retrieved August 8, 2020, from VOXEU:
https://voxeu.org/article/covid-19-crisis-dollar-and-capital-flows
Fibre2Fashion. (2005, August). Fibre2Fashion. Retrieved August 2020, from Fibre2Fashion.com:
https://www.fibre2fashion.com/industry-article/37/overview-of-bangladesh-garment-industry
Hasan, M. (2020, March 31). Dhaka Tribune. Retrieved August 7, 2020, from Dhaka Tribune:
https://www.dhakatribune.com/business/banks/2020/03/31/banks-to-launch-9-lending-rate-onwednesday
Hussain, A. (2020, May 14). Dhaka Tribune. Retrieved August 7, 2020, from Dhaka Tribune:
https://www.dhakatribune.com/bangladesh/2020/05/14/rmg-workers-stage-demo-vandalise-factoryin-savar?__cf_chl_jschl_tk__=54b0926885a3d1df62b79f51b6a70fa42e76fb7d-1589466648-0AQUcylSAfunrwfuUI65867cFO_gdWDCoUXuJgFVRZ_FBMNsYaoXBC8rwjra7ulVL_w5s6YkjDTw5oJSumon, S. (2020, May 26). Arab News. Retrieved August 7, 2020, from Arab News:
https://www.arabnews.com/node/1680011/world
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